Category: corporate life

News is full of cool technologies like drones, blockchains or autonomous cars and their disruptive character. Traditional firms have switched to innovation mode and have now cool digital transformation units to use these new technologies. Everybody is happy. Great, isn’t it?Or wait? Can this really work that easy?

I just had a project with a company that has set up an innovation unit to push innovation. They have great people who are very salient with all the tools we use today in holistic innovation management like Design Thinking, Scrum or Lean Startups.

However, when management wanted to use the 3 horizon framework, originally from McKinsey but later further developed by Paul Hobcraft, to map their innovation projects on the 3 horizon matrix, we had problems to rank the projects to the 3 horizons.

The entrepreneurial side: The missing side of innovation

The reason was simple. The focus of the projects was on technology and not on customer’s side of innovation or on the business model. Somehow, it seems that the project managers were happy to have installed the new fancy technology but have forgotten the entrepreneurial side of innovation.

It is important to remember what Michael Schrage has said to innovation:

Innovation is not what you innovators do… It is what customers and clients adopt.

Not only the customer side was missing but also the side how they wanted to use the technology in their business. The following illustration shows the relationship between technology and value creation.

The business model creates the value, not directly the technology*

How could that have happened in a company that has the tools and innovation managers that know how to apply the tools?

Volkswagen, the world’s second-biggest carmaker admitted that it has been dishonest with customers and regulators. It has installed a software in its cars that falsifies emissions data of its diesel cars. Unfortunately, it is a perfect example where the values promised to customers and the real behavior outright contradict. And because of the mismatch, Volkswagen is in a perfect storm.

Volkswagen faces a fines up to $18bn, criminal charges against its executives and legal actions from customers. At the same time a third of its market value was wiped out or the a staggering amount of around €30bn.

The head of the US operations of Volkswagen admitted that they “totally screwed up“. And I hope he meant the deed and not the disaster afterwards.

What happened? Volkswagen had to admit that 11 million of its diesel cars could be equipped with software to cheat on emission tests. The American Environmental Protection Agency (EPA) had accused the firm of faking pollution tests and thereby cheating on regulators, the public and customers.

The case is already bad enough, but what is even worse is that the deed and the behavior that lead to the deed totally contradicts what Volkswagen promises in its value proposition.

Volkswagen states in its brand three core messages of which one is: Responsible

Volkswagen always played the role of the company with high morals. Responsibility was their core value they wanted to pursue and used heftly in their marketing.

And cheating deliberately on emission test is just the opposite of being able to differentiate what is right or wrong. Cheating is wrong! And it is not cheating software but the whole behavior that let a whole company come up with a software to cheat. Dozens and more people at Volkswagen must have known this and did nothing against.

What does this tell us about the culture they have at the firm?

Unfortunately a lot.

And unfortunately, the car industry has a bad track record between their promises and reality when it comes to emission and fuel consumption. The car manufacturers promise low fuel consumption however, they can only be achieved in unrealistic test scenarios and not on the road. Actually, it’s legal but totally against what Volkswagen promises to be responsible.

And as a responsible company you should live up to your standards and do not try to seek loopholes in regulation to mislead customers and the public. Still car companies do.

Not your stated values are reality but your behavior in your business (model)

Recently, I had an intensive discussion with David Siegel who just moved to Zurich. His big idea is business agility and he is so right since the missing part in business model innovation is the process moving from your current business model to a better future. He calls it business agility. We at fluidminds use Rethinking business and Entrepreneurial Design for the process.

Regardless what wording we use, what we need is a process that helps companies to develop innovative business models that customers, employees and the owners love.

Today, two processes exit in companies that could be used: the innovation process and the strategic planning process. The names of the processes suggest that they could be useful, however in reality the opposite is the case.

Why? They lack agility and experiments. Both processes have the hidden assumption that with more and better planning you can anticipate the future. Both are focused on existing products and markets. These tacit assumptions might be right for a world of sustaining innovations, in a world of more-of-the-same.

But, and that is a BIG BUT, not in a world which is radically changing. Business model innovations have a disruptive character and focus on the whole business model. There is a need for business model innovations in any industry due to the Internet, the demand for clean energy, globalization, and due to the rise of Asia.

Therefore, almost every firm needs a different approach to innovation and strategy.

The future is not about prediction but about shaping the future with agile experimentation on what works and what does not work

We always hear that the customer is not buying because the price is too high. Is the price important?

Of course, most clients will say yes in any survey or in sales negotiation. Actually, there are departments at your clients that know only two words: Too expensive!! Give me rebates! That is the purchasing department and it is their job to negotiate the price of a purchase. However, is this true, that even for B2B customers only the price is important?

Observe the jobs-to-be-done of your customers. Don’t ask the customers

Let’s take an example from RWE, a huge German utility firm. Let’s take the case they need to purchase electronic testing equipment. Nothing fancy, just a plain vanilla device for 30 to 50 Euro. Traditionally, this purchase would be a C category purchase. C means not critically important to the firm and therefore the firm usually shops around among different suppliers for a good price.

So you would assume that price is the decisive criteria for a firm to purchase from you. And yes, if you survey customers what is important in their decision to purchase C goods, the price will be on top.

So, all B2B marketplaces of the late 1990s and early 2000s like Onvia had the value proposition that price of the goods are the most important criteria for the B2B market. So they offered everything economics told them what to do in a price sensitive market: Make auctions, offer pool buying for larger quantities or make requests for proposals.

Not the price of the good is important but the whole cost of purchasing

However, they had to learn the hard way (most disappeared from the market) that this is not the case. Let’s go back to the testing device of 30 to 50 Euro at RWE. Saving an extra 20% on a purchase of 50 Euro is great. But is it just 10 Euro. But the costs for the internal purchasing process can easily be 150 to 200 Euro for the traditional process according to Karl Czech from RWE purchasing. Continue reading It’s not the price, stupid. It is the value (proposition)

The airline business is a strange business and in desperate need for business model innovation. On the one hand, more people fly than ever to prices lower than ever. IATA, the industry body, states that the real cost of travel has fallen in the last 40 years by about 60% and the number of travelers increased tenfold. Air freight has grown in this period by a factor of fourteen. (See IATA Vision 2050) That sounds like a very successful industry. Is it? However, on the other hand, airlines are notorious to not even earning their cost of capital and producing unhappy customers.

During the 2000s the average airline generated an EBIT margin of just 0.7%. Taken a longer perspective, the figures are as drastic. From 1970 to 2010 the airline industry generated over USD 12,000 billions of revenues in today’s prices, but only a total of USD 19 billion of net post-tax profits; a margin of only 0.1%.

Another dull figures: Around USD 500 billion of investors’ capital is tied up in the airline industry. Normally, investors would expect a return on capital of around 7-8%. Taken the 500 billion that would mean a return of 40 billion annually to cover the cost of capital. But what did the airlines earn? 20 billion or 20 billion less that the capital would have earned elsewhere. The airline industry is a big capital destroyer. Interestingly, other firms along the travel value chain like airports or computer reservation systems earned excess returns. So there is profit in the travel industry but not with the capital-intensive airlines. Airlines are a dismal industry.

So are customers at least happy? Just type in Google the search “airline experience” and enjoy all the customer stories about flights. And watch the film “United breaks Guitars” like 12 million others did on Youtube.

What went wrong and is there a solution to it? And think about it why we all hunt of low prices on traveling while we spent USD 5 for a latte at Starbucks. Why are we so price conscious on travelling and not on coffee?

Here are some thoughts I presented at the 17th international airline conference last fall in Seattle. Thanks to Nawal Taneja, Dietmar Kirchner and Rob Solomon for the kind invitation.

It seems that all airline managers are great students of economics but not of entrepreneurship and marketing. Since they have a perishable good (empty seats on an upcoming flight are like perishable goods), they believe strongly in variable pricing by exploiting the maximal price customers are willing to pay.

That sounds very reasonable at first, since who wants to argue with economists and their theoretical models, but what airlines have forgotten over time is, that if you treat customers like rational customers then you will get rational customers and extremely price sensible customers in the end. However, there is a good reason why economics is called a dismal science. So if you follow economists, Continue reading The strange business model of airlines

We have a great tool for visualization of a business model: the canvas. There is a hype on visual thinking and business model design. But can the tools deliver?

In the last years, I have seen many uses of the business model canvas to real cases. Some showed astonishing results, others were disappointing. Why? Any tool is only as good as the user. A fool with a tool is still a fool. But also: A genius without the right tool might be a fool. So let’s see, what makes the difference.

Visual Thinking = Thinking with Visual aid

Visual Thinking is often mistaken as nice visualization. A bad idea does not become better by visualization. Visual Thinking is great since you think in pictures. Visualization can help to make your thinking better, to see more options and see the interdependencies among all components. But you still have to think!

There was a reason why god gave us two brain hemispheres: Visual Thinking is the combination of analytical and creative thinking. So do the thinking.

Be precise in your thinking

Due to the limited space, people tend to be pretty imprecise when filling out the canvas. They fill the canvas as if it is just a form, not the master plan for a venture or for the future of your firm. That happens particularly often in large corporations where the people are so stuck in their old thinking. Continue reading The Art of Painting on the Business Model Canvas

How do brands and business model work together? That is a key question for successful companies because if they do not align brand and business model it will backfire, probably not in the short run but surely in the long run.

Branding is a hot topic. Brands give products the magic touch. With branding regular, normal products morph into highly desired status symbols customers are willing to pay a premium for. Branding worked very well in the last years but is branding sustainable?

Brands are not sustainable if the foundation is missing

Branding is not sustaining when you have a business model that does not support your brand or vice versa, your brand promises something you cannot fulfill. If you focus too much on branding you create over the long run, a perception gap between what you promise and what you deliver. It is like the icing on the wedding cake. It looks great but very rarely does a wedding cake taste as good as it looks.

Let us look at one example.

The Ergo Insurance Case

The German insurance company Ergo Gruppe is the holding company of the well-know household brands Victoria Insurance and the famous Hamburg Mannheimer Insurance. Lately, Ergo decided to consolidate its brands under the fresh brand Ergo. Ergo tapped into people’s discomfort that insurance companies are great in sales but very bad when it comes to ease to understand the policy condition and in the case of a claim.

From this customer insight of discomfort with traditional insurance companies Ergo created the claim “Versichern bedeutet verstehen.” or in English “To insure means to understand”. Ergo used all communication channels and very well made commercials to establish the brand Ergo among German consumers. In the ads, people ask why it is so difficult to get insured, why the agents do not take them serious. Continue reading Brands are the icing on the business model

During the last dozen years, his role involved writing, editing, speaking, and teaching about design thinking and the company’s history, culture, and processes. Scott is not IDEO’s spokesperson but a person with insights into the design thinking process. I would like to share his insights with you on the importance of the problem

definition phase and of challenging the assumption of your thinking. Below, you find what Scott wrote in his comment. I have added some emphasis to what Scott wrote.

Scott Underwood, formerly with IDEO, on Design Thinking

Patrick, I can’t give an answer that applies to all of IDEO; I’m not a spokesman, so this is my opinion: Despite definitions that we see in books and websites, design thinking remains a fairly fuzzy and dynamic concept — the phrase “nailing Jello to a wall” comes to mind. However, the problem definition phase of a project is a key component, and this is where not only big corporations but individuals like me fail. Continue reading Design Thinking revisited: A conversation with Scott Underwood

The value proposition is the defining moment of any business, not the product or the service you offer. But it is important to realize that it is not of importance what you write in or think up for your business plan but what customers perceive to be your value. And there can be a huge mismatch.

The classic business plan is a plan of promises. On paper the value proposition almost always sounds promising but in reality the customers have quite often a different perception of the firm, of its products or services. There is a mismatch between value proposition and value perception, the perception gap:

Why: Simply put!

you do not get the message across to your customers since your distribution and marketing channels are too weak or

you do not fulfill the value proposition you offer with your business model you actually have.

The Perception Gap

In most cases, managers will say that the first reason that they just don’t get their message over to the customer is the main cause why they cannot close the perception gap. So in their belief they spent more money on communication and sales and try to persuade potential customers that they offer the best value.

Thomas Middelhoff was the CEO of the now insolvent German retail conglomerate Arcandor formerly known as KarstadtQuelle. Thomas Middelhoff has a good sense for timing. He left Arcandor in March 2009 just 3 months before the company had to file for bankrupcy in June. What made his stint at Arcandor so remarkable was not that he turned around the business of Arcandor but his ability to benefit personally from his position at Arcandor.

I am following the Arcandor business case for a while and I have written about the failure to innovate its business model in the past. So a recent article of Süddeutsche on Arcandor grabed my attention.